Yen subdued as BOJ mulls tweak, euro holds gains

SYDNEY (BestGrowthStock) – The yen was on defensive on Monday, hovering within striking distance of three-week lows against the U.S. dollar, on growing expectations the Bank of Japan could mull loosening monetary policy further this week.

In contrast, solid retail sales data offered the U.S. dollar support against the yen, heading into a week when the Federal Reserve’s policy setting committee meets on Tuesday. U.S. retail sales rose unexpectedly last month despite heavy snow storms, boosting hopes of a durable economic recovery.

Analysts say, since U.S. consumers are buying more and companies appear to be on the verge of hiring again, policymakers in the Fed may ponder on how long to keep its ultra-low rate pledge.

The Bank of Japan (BOJ), on the other hand, is one of the few central banks that is likely to ease its ultra-loose policy even further.

Traders say the divergent market expectations should keep the dollar firm on the yen, at least in the short term.

In early Asian trade, the yen slipped to 90.64 per dollar, from 90.42 late in New York on Friday when it fell to as low as 91.08, its lowest level since Feb 23.

The BOJ ends a two-day meeting on Wednesday and it is likely the bank will announce additional easing measures, like boosting the size or duration of its special fund-pumping operations.

The bank could also extend the maturity of this new operation from three months to six months, or increase its outright purchases of Japanese Government bonds. All in all, analysts say, the policy moves may be guided by a desire to weaken the yen in a bid to support the ailing export-reliant economy.

“While the dollar can move higher on a storm of BoJ easing and stronger U.S. data and therefore higher yields, momentum will be fleeting until the Fed tightening cycle is well underway,” JP Morgan said in a note.

The dollar index (Read more about the global trade. ) (.DXY: ) was lower at 79.814, hovering above its short-term support level at around 79.60. The euro was firmer above $1.3765 and not far from its Friday peak of
$1.3796.

Speculators pared back short euro positions, spurred by data which showed euro zone January industrial output record its biggest ever monthly increase.

The euro was also supported by reports that euro zone ministers have agreed to a rescue strategy for Greece, if one is needed. Traders said there was also talk in the market of a large selling order around $1.3800 which could be an option-related one.

The euro was firmer on the yen, at 124.73 yen from 124.45 yen late in New York on Friday.

The pound slipped to $1.5178, after posting robust gains on Friday. The outlook for sterling remains grim amid concerns about a hung parliament which is seen potentially hampering the government’s efforts to cut UK’s ballooning budget deficit.

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(Reporting by Anirban Nag; Editing by Wayne Cole)

Yen subdued as BOJ mulls tweak, euro holds gains